On Wednesday I will share with City Council my recommendations for balancing the city’s budget for 2015 and taking the first steps to bring our finances back into structural balance for the long term. I urge our councilmembers to unanimously support these recommendations, which balance expense reductions with increased revenue. Without action on these changes, we will not be able to avoid deep cuts across city services.

Thank you to our residents and business leaders, council members and city employees, who have all shared feedback, questions and ideas with us over the past several months. This process has given our citizens an opportunity to learn more about the city’s finances and tell us what matters most to them. I am very grateful for all of the input we’ve received.

I am proud of our record of financial management and leadership over the past decade. Through one of the most challenging economic periods of our lifetimes, we have successfully kept the city in good financial standing.

Our tradition of fiscal responsibility gave us flexibility during the slow recovery from the recession, and we were able to weather the downturn without major cuts to service. But that doesn’t mean we haven’t made adjustments. Under my direction, we eliminated 25 full-time positions over the last six years and deferred more than $30 million in contributions toward long-term obligations and capital investments. We put planned projects, like library and parks expansions, on hold, and we deferred maintenance to streets and parks.

I also very deliberately did not propose raising taxes and fees during the recession, when many of our residents and businesses were already suffering. That was the right choice, and I would do it again the same way. However, I have consistently warned that we would need to make adjustments in the future.

Despite positive economic news and new developments happening in Everett, the reality is that revenues have not recovered as substantially as any of us has hoped. Revenue from sales taxes — the general fund’s second-largest income source — remains below 2007 levels. We increasingly see the state withholding revenues, such as projected sales taxes from recreational marijuana, while unfunded state and federal mandates cost the city more than $13 million a year. We must also budget for future demands on the general fund, such as subsidizing Comcast Arena at a higher rate.

Going forward, we project revenues to increase by just 2.3 percent a year, while our expenses are estimated to grow at 4.1 percent. This is an unsustainable model, and the time is right to make proactive, thoughtful changes to bring us back into balance for the future. My recommendations reflect that approach.

On the expense side, my primary focus is our ongoing efforts to rein in labor costs. I recommend eliminating 15 full-time positions and continuing to work toward 10 percent medical-premium contributions for all city employees (elected officials and appointive employees already contribute this amount). Changes to represented employees’ benefits will require negotiations with all of our labor unions, and may take several years to fully achieve. However, the public has been very clear that they expect city leaders to address the rising cost of health care for our own workforce, and I urge the City Council to support these efforts.

We heard from many citizens about the importance of the Forest Park swim center and Walter E. Hall golf course. That feedback echoes my own views. While staff brought forward a long, wide-ranging list of options for the City Council’s consideration, my goal has always been for these two facilities to remain open, and I will make those recommendations official this week.

At the library board’s direction, I will recommend eliminating the library outreach program, and I have already directed staff to move ahead with procedural changes to better recover costs at the municipal court. However, current city programs and services will remain largely intact under my recommendations.

Amenities like the swim center, senior center and library, and services like Everett Transit and ferries to Jetty Island, add to our citizens’ quality of life and attract new visitors to Everett. Our citizens and business owners overwhelmingly affirmed that these are the things that make Everett a place where they want to live and work.

We also consistently heard from community members that they would rather pay a little more to support the city than to see our affordable, accessible programs and services disappear. That’s why my recommendations on the revenue side are designed to better align our rates and fees with the cost of providing those valued services, and to bring us in line with peer jurisdictions.

My recommendations include raising the fee for business licenses to $75, with an annual renewal, and increasing our utility tax rate from 4.5 percent to 6 percent for natural gas, electricity and phone service, and to 2 percent for garbage and cable. This would represent an increase of less than $7 a month for an average Everett family. I will also recommend that the council create a transportation benefit district with a $20 car-tab fee for vehicles licensed in Everett. Revenues from the car-tab fee will help fund our street overlay program.

Rather than target a specific group for revenue adjustments, I’m recommending moderate increases across the board, balanced with cost-cutting measures on the expense side. Together, these adjustments will help us propose a balanced budget for 2015 and will provide important additional revenue in future years. The full list of recommended changes is available on our website at www.everettwa.org/default.aspx?ID=2177.

There’s still more to be done. The second phase of our work will involve in-depth reviews of some of our largest departments, beginning with our fire department. Public safety remains my number one priority, but we know that there are opportunities for improvement. The time is right to take a comprehensive look at our resources and staffing practices to make sure they are appropriately aligned with the types of calls and requests for service that we receive.

We must take the time for thoughtful review of these large, complex departments, and I urge the council to support moving forward with the independent studies. Most changes to these departments will require negotiations with our unions, and will take time to implement. While they will not affect the 2015 budget, they will be very important in helping us achieve ongoing structural balance.

A process like this is never easy, and there’s never an ideal time for city leaders to make cuts or increase rates. However, we must take steps to address our structural deficit in a way that is thoughtful and fair, rather than kicking the can down the road. My administration is already actively working to control labor costs and achieve equitable medical benefits for all of our employees, but we must also make sure that our fees and rates reflect our true cost of doing business. With the council’s support, we have the chance to preserve the things we love most about living and working here, by ensuring that we have the revenue to pay for those services.

Ray Stephanson is mayor of Everett.

City needs a lasting change in thinking

By Brenda Stonecipher

Recent revelations of budget woes in the City of Everett have taken our constituents by surprise. Through the Great Recession, other cities tightened their belts, while Everett was seemingly steady at the helm. Now, citizens are wondering when the ship started “taking on water” and what the city plans to do to bail it out. Along with cuts to beloved programs, the largest tax and fee increases in recent memory are being proposed to plug the hole. I believe these remedies are being forwarded in haste, with inadequate consideration of the paradigm shift occurring in the operating model for local governments. Many of these proposals will not affect a meaningful change in the budget trend line.

The City of Everett is facing a projected shortfall of $12.6 million for the 2015 general fund budget. A projected deficit going into the budgeting process is not new; for years, the annual forecast has foretold future shortfalls, starting at $3.6 million in 2007, expanding to approximately $10 million for each of the past four years. The City of Everett requires a balanced budget. This has become more difficult over the years, because the deficit is not a temporary condition. It is “structural,” which means revenue growth will never again keep up with the expenses without fundamental changes in revenues, expenses, or both.

The leading causes for Everett’s stalled revenue growth include the City’s portion of tax breaks made to the aerospace industry in 2003 and again last year, the 1 percent limit on property tax growth enacted in 2007, and the significant loss of tax-generating business activity in the city. On the expense side, the double-digit rise in health care costs and contractual salary increases are the main culprits.

Just like home budgeting, there are only a handful of options available to balance the books: increase revenue, reduce expenses, forgo “saving,” or sell some assets to generate cash. Adjustments that alter the rate of growth in revenue or expenses are the only ones that are able to change the “structural” deficiency; one-time adjustments cannot.

Mayor Stephenson and his administrative team have undertaken a process to identify the options for closing the gap in 2015, as well as several study options that may impact the deficit in future years. These options, and their potential financial effect, are summarized in the list below.

Unfortunately, not all of these proposals will have an impact on the structural deficit. For example, forgoing police and fire pension contributions creates a one-time effect, with no improvement of the structural deficit; on the other hand, increasing tax rates will improve the revenue growth rate — and, thus, the structural deficit.

Tax and fee measures, which form the majority of administration’s proposal, require much greater analysis than has been provided. To review a single tax or fee in comparison to what other cities are charging is absurd. What really matters is the total tax burden we are placing on our citizens and businesses (i.e., what is the total annual tax bill). Until we do the work of analyzing the tax burden, we are ill prepared to decide on any tax and fee proposals.

The utility tax increases and the new flat-rate car tab fee are highly regressive taxes, because they affect low-income residents to a greater degree than others. With 16.9 percent of residents living below the poverty line and a median household income of $47,491, Everett is one of the most impoverished cities in Snohomish County — a fact that must be considered when setting tax policies. (U.S. Census, 2010)

The suggestion that we continue to forgo police and fire pension fund contributions is unthinkable. The payments to this fund are being made for retirees, yet we are still paying off the debt to their pension plan. Over the past five years, administration has postponed $18.3 million in payments owed to this fund. To continue to push this burden out to future generations is an affront to intergenerational equity.

Finally, plans to close Forest Park pool, eliminate library services, and cut other popular programs are discouraging. These services impact many lives in our community and their elimination provides comparatively little financial relief. Furthermore, cuts to these programs constitute a secondary attack on Everett’s low-income residents, who rely heavily on these resources for their quality of life.

City administration’s approach to the structural deficit has failed to acknowledge that a more fundamental change needs to occur in the management and operation of our government. The options being hastily advanced will not create the strategic shift needed to lead the City into the future on sound financial footing. As an alternative, I suggest a complete evaluation of all city operations, compared to other cities, to assess opportunities to improve. It should include a look at the efficiency and effectiveness by which we deliver services to our citizens, the services we are providing, and an analysis of the tax burden facing the various constituencies in our city. Other cities in the region have begun such work, finding efficiencies through more automation of city services, cooperative service arrangements, departmental reorganization, and elimination of non-essential services. Once we have an understanding of the “new normal” and have proven to our constituents that we are good stewards of our resources, we can then consider the revenue model to sustain it.

In the interim, the 2015 budget must be balanced. Using some of the same strategies as prior years (e.g., holding vacant positions, reducing reserve allowances, etc.) and some new ones, such as selling under-utilized properties owned by the general fund for which there are no strategic plans (e.g., the Culmback Building on Colby), the books can be balanced. If necessary, the City can also utilize a portion of the $20 million in accumulated operating surpluses (net income from prior years when the City was “in the black”) held in accordance with the Fund Balance Policy, which allows for use of these funds to meet unanticipated needs, with a payback plan. Given the dialogue surrounding the 2015 budget, it most certainly qualifies.

Now is not the time for short-term thinking. The structural budget crisis will not be solved by relying on regressive taxation policies, increasing cuts to heavily used City programs, and burdening the next generation of Everett residents with debts. Our City can move forward only if we adapt to the “changing tides” in the post-Recession era and take the time to look to the horizon for long-term solutions to the City’s woes.

Brenda Stonecipher is an Everett councilwoman and a certified public accountant.